Interest rates are falling. Can Singapore REITs continue to rally?

What happened?

Interest rates have fallen sharply over the past few months.

Recently, we saw the 6-month Singapore T-bill yield decline to below 1.5%.  The best 6-month fixed deposit rate in Singapore has also declined to below 2%. 

As a result, I have seen more discussion on Singapore REITs in the Beansprout telegram community. 

Singapore REITs have staged a recovery, rebounding 9% since 1 July 2025 as sentiment toward the sector improved. However, the sector continues to lag the Straits Times Index (STI) over the past year. 

With the REITs offering higher dividend yields compared to the Singapore T-bill, many investors are wondering if it is still worthwhile buying into Singapore REITs. 

Let us dive deeper to find out. 

Improved outlook from lower interest rates

Amid rising expectations of interest rate cuts by the US Federal Reserve, the 10-year Singapore government bond yield declined to 1.77% on 12 September 2025 from 2.92% at the start of the year. 

Likewise, the 1-year Singapore government bond yield has fallen to below 1.4% from close to 3% at the start of the year.

With SORA lower by more than 100 basis points year-to-date, S-REITs have started to report lower finance costs in the second quarter of 2025. 

For example, 1H 2025 finance costs for Keppel DC REIT and OUE REIT have declined by 5.3% year-on-year and 17.3% year-on-year. Digital Core REIT reported lower average cost of debt in 2Q 2025 at 3.4%, compared with 3.8% In 1Q 2025. Fraser Centrepoint Trust also reported marginally lower average cost of debt, at 3.7% In 2Q 2025, from 3.8% in 1Q 2025. 

Singapore REITs have been active in refinancing debt at lower interest costs, which is expected to support a reduction in their average cost of borrowing. 

This could in turn provide a lift to distribution per unit (DPU) in 2026. 

Performance has diverged significantly across the REIT universe

REITs with exposure to Singapore’s office and retail assets, where demand and rental income have remained relatively resilient, have outperformed by delivering growth in distribution per unit (DPU). 

In contrast, those with higher debt levels and substantial overseas exposure have underperformed, as pressure on funding costs and weaker regional currencies weighed on distributions. 

Looking ahead, we expect this divergence to persist, with returns continuing to depend on factors such as sub-sector exposure, geographical mix, and the extent of debt that has been hedged at fixed rates.

Office rents vacancies have improved

Vacancy rates for Category 1 offices saw a surprise decline to 11% as at 2Q25 from 11.7% as at 1Q25. 

Category 1 offices are office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area. 

Category 2 offices, which refer to the remainder of the office stock, however, saw vacancy rates remaining elevated at 11.6%. 

This suggests a continued flight to quality in a tenants’ market, amid significant new additions to Grade A CBD office supply, with Keppel South Central and Paya Lebar Green adding a total of 984,000 sq ft of premium Grade-A office space and 23,670 sq ft of retail and F&B space in 1Q 2025. 

Amid heightened net supply, particularly in the CBD area, office rents continue to be muted, with the URA office rental index down 0.3% QoQ in 2Q25. 

Retail rents steady

Over the last four quarters, retail vacancy rates have remained largely steady, with outside Central Area and within the Central Area but Outside Orchard vacancy rates at 6.6% and 8.5% respectively. 

Orchard vacancy rate was stable, at 6.9% as at 2Q25, likely reflecting rising retailers’ confidence in a continued recovery in visitor arrivals into Singapore, led by both leisure travellers and MICE (Meetings, Incentives, Conferences, and Exhibitions) events. 

Singapore’s tourism arrivals increased by 2% to 8.0 million in 1H 2025.  STB expects a further improvement in tourist arrivals to 17.0 to 18.5 million in 2025.

As a result, the URA retail rental index improved, rising 0.9% QoQ in 2Q25. With below-historical-average supply over the next few years, property consultancy CBRE expects overall prime retail rents to recover to pre-pandemic levels in 2025. 

Industrial rents up marginally

Overall industrial rents were up marginally in 2Q25, led by Business Park with a 1.2% QoQ growth, followed by Multiple-User at 0.9% QoQ, Single-User Factories at 0.4% QoQ and Warehouse at 0.4% QoQ.   

Vacancy rates at Business Parks and Single-user factory space improved to 23.3% and 11.0%, respectively in 2Q25.  

An additional 1.2 mn sqm of industrial space is expected to be completed in 2025, with a further 1.1 mn sqm of space to be completed in 2026, totalling a significant 2.3 mn sqm of industrial space over the next two years. In contrast, average annual supply of industrial space was 0.9 mn sqm in the past three years, with average annual demand of only 0.6 mn sqm. 

While the total expected completion over the next two years includes 0.9 mn sqm of single-user factory space, which is typically developed by the industrialists for their own use, the significant supply pipeline of industrial space across warehouses, multiple-user factories and business parks are expected to add pressure to rents and vacancies in the near term. 

What would Beansprout do?

Singapore REITs have staged a recovery, rebounding 9% since 1 July 2025 as sentiment toward the sector improved. However, the sector continues to lag the broader market on a one-year basis. 

We see scope for Singapore REITs to benefit from a lower interest rate environment. 

However, we expect the divergence in the performance of Singapore REITs to persist, with returns continuing to depend on factors such as sub-sector exposure, geographical mix, and the extent of debt that has been hedged at fixed rates.

Within the sector, we favour REITs that can sustain and grow distributions through active portfolio management, such as asset enhancements, selective acquisitions, or rental reversion opportunities. 

For example, we expect Parkway Life REIT to see DPU growth in 2026, supported by higher revenue from Mount Elizabeth Hospital, following the completion of its asset enhancement initiative (AEI). Likewise, we expect Elite UK REIT to post higher DPU in 2026 as it repositions its portfolio for long-term growth.

You can find the best Singapore REITs and compare their latest valuation with our Singapore REITs Screener.

Also, learn more about how Singapore REIT ETFs allow you to gain exposure to a diversified portfolio of Singapore REITs with a single trade. 

• CICT - Acquisition of CapitaSpring to deepen Singapore presence

• CapitaLand Ascendas REIT expands Singapore portfolio. 

• Parkway Life REIT - Long-term defensive growth potential

• Elite UK REIT - Room for positive asset repricing

Price-to-book valuation of Singapore REITs

Source: Bloomberg as of 12 September 2025

Explore Singapore REITs to understand how S-REITs work, sector breakdowns and the top Singapore REITs by dividend yield, potential upside and market cap.

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